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Saturday June 19, 2010

Takeover battle for Parkway pits two different cultures

“I’VE fired people for stealing as little as US$125,” Fortis Healthcare Ltd CEO Shivinder Mohan Singh once boasted to business magazine Forbes in an interview.

With a wealth of some US$3bil shared with his brother Malvinder Mohan Singh, the Singh brothers from India are widely known for their swagger as much as their insatiable appetite for deals and penchant to rattle the operational status quo in the companies they’ve gobbled up.

So, even a tamed imagination should be able to figure out what could have possibly led to the simmering tension between Fortis’ controlling shareholders Malav and Shivi Singh (as they are commonly known) and Malaysia’s relatively subdued Khazanah Nasional Bhd since the former’s emergence as a major shareholder in Singapore-listed Parkway Holdings Ltd – divergent weltanshauung or world view.

After months of tiptoeing around the rivalry, Khazanah, quite unlike itself, had outflanked the Singh duo who hurriedly reconstructed the board with four new additions, by launching a partial takeover for Parkway Holdings.

If successful, Khazanah will wrest control of South East Asia’s largest healthcare company with a market value of US$3.08bil. Will Fortis walk away or will it make a counter bid? If they do, will Khazanah bite?

More importantly – should other shareholders of Parkway hold out for a better offer?

The possibilities are aplenty but at this point, there is only one offer on the table. Everything else is meaningless chatter.

Just how badly do Malaysia’s Khazanah and India’s Fortis want Singapore-based Parkway? No doubt, executives from both the companies have spent long nights asking themselves exactly that. The question, however, really is – just how much should they want Parkway?

First a quick recap as it is easy to get lost in this maze of corporate one-upmanship:

·March 11: Bombay Stock Exchange-listed Fortis Healthcare acquires a 23.9% stake in Parkway for US$685.3mil or S$3.56 apiece.

·March 19: No time wasted in board revamp – Malvinder is made chairman, Shivinder becomes CEO and managing director while two other directors join the board.

· Between March 11 and May 24, Fortis ups its stake to 25.29% through a series of transactions, pipping Khazanah’s 24% stake

· May 27: Trading halt on Parkway shares.

Khazanah sets up wholly-owned Integrated Healthcare Holdings Sdn Bhd (IHH) which makes a voluntary conditional partial offer for Parkway shares at S$1.18bil (US$833mil) or S$3.78 per share cash. The offer price represents a 25% premium over the share price then. (Offer closes on Aug 10).

· May 31: Trading halt lifted. From the last traded price of S$3.02, Parkway’s shares surge 23% to S$3.71

· June 9: Fortis seemingly fires a salvo; it reveals plans to raise US$584mil and increase borrowing limit to US$1.3bil. Many read this as a signal that it is crafting a counter bid

· June 10: Parkway’s shares jumps to a high of S$3.87, surpassing Khazanah’s offer price on intense speculation of a competing bid. (It has since calmed down to levels close to Khazanah’s offer price)

· June 15: Malvinder shoots out a clarification that the fund raising exercises are “merely enabling resolutions” and that it was keeping its options open. The remarks fan further speculation.

· June 16: Singapore’s SIC steps in before the tussle degenerates into a protracted vicious cycle. The regulator gives Fortis until July 30 to make a counter bid.

Amid all the read-between-the-lines rhetoric, wild speculation and adrenaline rush that a corporate takeover battle emits, one thing stands out – a national irony.

Khazanah’s ties with Parkway began in 2005. In September 2005, much to the chagrin of many “upholders of national-interest”, Parkway acquired a 31% controlling stake in Pantai Holdings Bhd. While many in the investing fraternity viewed the news as positive for Pantai given Parkway’s established track record and expertise in managing hotels (for why else would Parkway be the takeover target of two mega corporations today?), the transaction found itself smack in the middle of a Malaysian political landmine. Critics bemoaned that Pantai, a national strategic asset with two medical concessions, ought to remain in the hands of locals.

Many months later in August 2006, in swooped Khazanah. Newly set-up Pantai Irama acquired Parkway’s stake in Pantai and took the latter private. Parkway ended up with 40% in Pantai Irama while the rest was controlled by Khazanah. In 2008, Khazanah acquired a 16% stake in Parkway, which it has since raised to 24%.

Can’t seem to have enough

Fast forward four years, today Khazanah and Fortis – two large foreign corporations – one a state investment arm with assets worth RM92bil (US$28bil) as at end-2009 and the other, India’s second largest hospital operator by market value of US$1.1bil – are competing for more than a slice of Parkway.

The issue this time is not that they can’t have a piece of Parkway, a healthcare group which derives over 60% of revenue from Singapore operations, but this – they just can’t seem to have enough.

Parkway’s main allure is its dominant domestic position and growing regional franchise in Malaysia, India, UAE, Brunei and China. It also owns a 35.4% stake in Parkway Life REIT, which invests in healthcare/healthcare related real estate assets.

In short, it possesses the sweet combination of high quality assets and strong growth prospects.

To launch a general offer, Fortis would need to cough up some US$2.3bil. No easy feat. There’s talk that Fortis has lined up India’s wealthiest person Mukesh Ambani of Reliance Industries to buy a stake in the former.

If this happens, Khazanah will find itself facing off with India’s giants.

Asia’s premium healthcare platform

If Khazanah were to emerge triumphant, the path would be clear, as per its own pitch to Parkway shareholders, for the creation of Asia’s premium regional healthcare platform via the consolidation of Parkway, Pantai, Apollo Hospitals Enterprise Ltd (Fortis’ archrival) and IMU Health Sdn Bhd.

To safeguard its interest, Fortis has two moves – come up with a bag full of money to stage a counter offer or thwart Khazanah’s bid and maintain status quo. Either one of these scenarios would see Fortis emerge victor (if its offer pulls through, that is) as it already has control of the company. Right? Not quite.

Khazanah’s final trump card could be Pantai Irama, which controls the Malaysian operations. Pantai Irama is governed by air-tight shareholder as well as operational and management agreements which, if push comes to shove, could be used to backfire on the Singh duo.

So, what’s the big deal, you ask? Malaysia is currently the jewel in Parkway’s blossoming overseas operations and major contributor to its revenue and operating profits.

Even Fortis should appreciate that there’s no point shooting oneself in the foot all in the name of expanding the group’s footprints in the region.

·Business editor Anita Gabriel thinks that in a race like this, sometimes the one who walks away may not necessarily be the loser as everything has a price. What’s yours?